CEF vs. ETF Arbitrage in the Real Estate Sector [View article]
The most disappointing thing about this comment is that the person didn’t read the article or the conclusions carefully. The article suggests that a strategy of CEF and ETF arbitrage don’t make sense for all the reasons stated in the article. I actually put it in bold letters so it wouldn’t go undetected. For your benefit I’ll restate it again below:
“Due to the similarity of ETF portfolio holdings, there may be greater arbitrage potential among the real estate ETFs than between ETFs and CEFs. Clearly, given the relative trading volumes, ETFs are a superior trading tool to CEFs for real estate.”
Beyond that, the comments were factually inaccurate and off the mark. Let me deconstruct some of these comments.
1) “CEFs and ETFs and not comparable because of leverage.” There are many ETFs that employ leverage and they go by such names such as “ultra” “2x” and “double”. You can buy them either on the long or short side. In fact URE, a CEF that’s included in my study, is an ETF that employs leverage. So, this is a factually incorrect statement.
2) “CEFs should be heavily discounted given their poor performance and unresponsive management” Anyone who has followed CEFs recognizes that the best time to buy CEFs is when they’re at deep discounts, inexpensive and truly reviled. (You might be a good leading indicator for their recovery.) To dismiss them for that reason is like suggesting we should buy them when they’ve performed well and are at premium? History will demonstrate this is a flawed strategy.
3) “What’s the point of an article on arbitrage when you can not borrow the shares?” While you may be right that it’s difficult to short CEFs in term of volume, one certainly could go long a CEF and short an ETF.
I would hope that in the future that you read other peoples’ work more carefully and support your criticism with facts rather than conjecture and suppositions. The investment world is not a world that supports proof by assertion.
Joe Eqcome
On Dec 14 10:48 AM Scott F wrote:
> I don't know; this is pretty thin gruel. ETFs and CEFs are not highly > comparable because of CEFs' extensive use of leverage and ludicrous > management fees. CEfs should be heavily discounted, considering their > poor performance and unresponsive management (have any of you listened > to one of their conference calls?). When you factor in their suspension > of dividend payments for not meeting asset requirements, you really > wonder if the author has done his homework. Lastly, what is the point > of an article on arbitrage when you cannot borrow the shares? This > does seem like random thoughts with unreadable graphs versus any > concerted thinking.
Closed-End Fund Discounts as a Predictive Investment Tool [View article]
Jegan, I fully subscribe to your strategy. My incremental value might only be for buying on subsequent days of nausea. Happy Holidays! Joe Eqcome
On Dec 08 04:24 PM jegan ;-) wrote:
> Nice topic and clearly presented... Buying an historically cheap > NAV is a common model. > > For those that dollar average into ETFs, stocks and funds, they may > want to stick their cash in a checking account and wait for a day > when the market is just ugly. Then hold your nose and buy. The inverse > is true for selling. Pick an exuberant day to sell your fund. This > is particularly true in a market that can move 1000 points in one > day, and funds can swing 8% that day. You may be giving yourself > or reaping a 10% bonus. > > jegan
Closed-End Fund Discounts as a Predictive Investment Tool [View article]
nym, I'm interested in pursuing the arbitrage possibilities between similar type ETFs and CEFs. I don't know if that's of interest to you. Happy Holidays! Joe Eqcome
On Dec 08 10:39 AM nym wrote:
> Thanks, I hope to see you analyze other ETFs for diversification. > Should I put you on my watch list?
CEF Yields May Indicate a Further 20% Drop in Prices [View article]
Tinman, I haven't found any easy downloadable, reliable source for distribtution compostion. It's a labor intensive exercise. I've collected my data from a combination of "Financial Highlights" from SEC filings for Individual CEF and supplemented it with information from "ETFconnect.com" from the individual reports in the "Distribution History Since Inception". So, If you find an easy aggregated, reliable and downloadable source of such information please pass it along.
Best, Joe Eqcome
On Nov 18 04:03 PM Tinman wrote:
> Agree that income-only yield is the right metric. Is there a readily > available, downloadable, and preferably reliable source of this info > for CEFs?
CEF Discounts Approaching 1999 Nadir [View article]
CEF was trading at a 6.3% premium at 12/31/99 and the following year (2000) the share price declined -23.6%.
Precious metals are typically a top/early bear stock market investment for investors looking to protect themselves from increasing stock market uncertainty. So, it might make sense that it would underperform in a market recovery. Other precious metal ETFs include IAU, GLD, SLV & DBS--all have short histories. CEF is currently trading at a 11% premium.
If you plot CEF against the S&P 500 you'd see an inverse relationship during the 1998-2002 periods. However, in 2008 the stocks seemed to trade in tandem as the market tanked. This still might be a good "short" possibility if the historic relationship between the two reasserts itself (long SPY; short CEF). Talk to your financial advisor before making such a trade.
Below is a URL to CEF at ETFConnect.com that has an abundance of data on CEF. www.etfconnect.com/sel...
CEF Discounts Approaching 1999 Nadir [View article]
There are many reasons why a CEF's current NAV might be below its original offering price. You're right in that one of the reasons may be it is paying a dividend in excess of its income.
However, depending on the CEF fund type, the more likely reason for a decline in NAV from its offering price may be the value of its portfolio has declined--due to market forces or events specific to its stock holdings. The investment rationale for buying the stock is that the CEF’s portfolio holdings may recover thereby driving up the stock of the CEF above my purchase price.
This may be somewhat similar to a builder who built a house costing $1 million. Due to declining housing values, I could buy it from him for $800,000. Why should I care that it cost him $1 million to build as long as I felt it was a value for me at that price?
It similar to an investor who purchased a CEF stock at the original offering price, I don't particularly care what he purchased it for as long as I think it’s a good value for me at the price I pay at that point in time.
CEF Discounts Approaching 1999 Nadir [View article]
Your figures for HQH are correct for the date for which you sighted them--which makes the case for HQH that day even more compelling then presented. Thanks for the catch.
Laws of Closed-End Fund Investing Suspended? [View article]
Searcher,
Go to ETFconnect.com find a fund. URL is below and It will allow you to compare funds side by side. I think you'll find it an extremely useful tool. www.etfconnect.com/sel...
Laws of Closed-End Fund Investing Suspended? [View article]
Erratum: Distribution yield for LAQ should be 0.11% vs 11.0% due to a misplaced decimal point and LAQ's discount should be a negative number -10.3% vs 10.3% in the final chart. Sorry for the inconvenience.
Cohen & Steers: CEF 'Spring-Loaded' in Market Recovery [View article]
With regards to the contention that a premium on FOF dilutes the benefits of a positive change in the contraction of the underlying portfolio discount is only true if in fact the premium of FOF change in an adverse direction, i.e., declines. So, FOF’s premium is a relative and not an absolute investment factor.
Example, if the underlying stocks owned by FOF go from a 10% discount to a 5% discount, the portfolio of stocks should increase by 5.8%. This would also be true for FOF's stock price--assuming the premium (or discount) remains the same. If in fact the premium increases (or in the case of a discount, contracts), the return on the underlying portfolio is further enhanced. If FOF's premium increases from 1% to 2% (a small nominal increment) the return on FOF's stock would be 6.9% vs. the underlying return of 5.8%.
FOF currently trades at a slight premium of 0.76% (10/24/08). FOF has been trading at a monthly average discount of 2% price to NAV since its inception, so there is the possibility that if FOF gravitates to its historic mean it may have some dilutive effect on the underlying return of its portfolio. Although, in market recoveries CEF's discounts contract and premiums expand.
Cohen & Steers: CEF 'Spring-Loaded' in Market Recovery [View article]
IMHO, for those who have the time and effort to research and purchase the individual stocks in FOF's portfolio—go with God! But, remember, you’re going to be absorbing the cost of 10 trades versus one. Assuming you purchased 100 shares of each of the 10 top holdings at $10 per trade it would cost you $100 versus one 1,000 share FOF trade at a $10 commission. This should help mitigate FOF's management fee (less than 1%). FOF is just a convenient way to play the CEF discount contraction in a rising market--not the only one.
Secondly, while CEFs have been around since the Depression (regulated by the ’40 Act) its current composition would not be comparable with far earlier periods. After being moribund for decades, the CEF industry experienced a growth spurt. Since 1990 the CEF industry has gone from $52.4 billion in assets (71% bond funds) to $315 billion is asset in 2007 (only 20% represented bond funds) (ICI Fact book). So a comparison with the pre-90's might not be meaningful.
Lastly, FOF currently trades at a discount of almost 2% to its NAV which represents a further discount to its discounted holdings.
While FOF is currently yield almost 15%, only 28% of the distribution is covered by investment income. It will likely have to tap into its capital to maintain the distribution--placing downward pressure on its NAV
CEF vs. ETF Arbitrage in the Real Estate Sector [View article]
“Due to the similarity of ETF portfolio holdings, there may be greater arbitrage potential among the real estate ETFs than between ETFs and CEFs. Clearly, given the relative trading volumes, ETFs are a superior trading tool to CEFs for real estate.”
Beyond that, the comments were factually inaccurate and off the mark. Let me deconstruct some of these comments.
1) “CEFs and ETFs and not comparable because of leverage.” There are many ETFs that employ leverage and they go by such names such as “ultra” “2x” and “double”. You can buy them either on the long or short side. In fact URE, a CEF that’s included in my study, is an ETF that employs leverage. So, this is a factually incorrect statement.
2) “CEFs should be heavily discounted given their poor performance and unresponsive management” Anyone who has followed CEFs recognizes that the best time to buy CEFs is when they’re at deep discounts, inexpensive and truly reviled. (You might be a good leading indicator for their recovery.) To dismiss them for that reason is like suggesting we should buy them when they’ve performed well and are at premium? History will demonstrate this is a flawed strategy.
3) “What’s the point of an article on arbitrage when you can not borrow the shares?” While you may be right that it’s difficult to short CEFs in term of volume, one certainly could go long a CEF and short an ETF.
I would hope that in the future that you read other peoples’ work more carefully and support your criticism with facts rather than conjecture and suppositions. The investment world is not a world that supports proof by assertion.
Joe Eqcome
On Dec 14 10:48 AM Scott F wrote:
> I don't know; this is pretty thin gruel. ETFs and CEFs are not highly
> comparable because of CEFs' extensive use of leverage and ludicrous
> management fees. CEfs should be heavily discounted, considering their
> poor performance and unresponsive management (have any of you listened
> to one of their conference calls?). When you factor in their suspension
> of dividend payments for not meeting asset requirements, you really
> wonder if the author has done his homework. Lastly, what is the point
> of an article on arbitrage when you cannot borrow the shares? This
> does seem like random thoughts with unreadable graphs versus any
> concerted thinking.
Closed-End Fund Discounts as a Predictive Investment Tool [View article]
I fully subscribe to your strategy.
My incremental value might only be for buying on subsequent days of nausea.
Happy Holidays!
Joe Eqcome
On Dec 08 04:24 PM jegan ;-) wrote:
> Nice topic and clearly presented... Buying an historically cheap
> NAV is a common model.
>
> For those that dollar average into ETFs, stocks and funds, they may
> want to stick their cash in a checking account and wait for a day
> when the market is just ugly. Then hold your nose and buy. The inverse
> is true for selling. Pick an exuberant day to sell your fund. This
> is particularly true in a market that can move 1000 points in one
> day, and funds can swing 8% that day. You may be giving yourself
> or reaping a 10% bonus.
>
> jegan
Closed-End Fund Discounts as a Predictive Investment Tool [View article]
Happy Holidays!
Joe Eqcome
On Dec 08 10:39 AM nym wrote:
> Thanks, I hope to see you analyze other ETFs for diversification.
> Should I put you on my watch list?
Recurrence of ETF Sectors During Recent Severe Market Declines [View article]
CEF Yields May Indicate a Further 20% Drop in Prices [View article]
I haven't found any easy downloadable, reliable source for distribtution compostion. It's a labor intensive exercise.
I've collected my data from a combination of "Financial Highlights" from SEC filings for Individual CEF and supplemented it with information from "ETFconnect.com" from the individual reports in the "Distribution History Since Inception".
So, If you find an easy aggregated, reliable and downloadable source of such information please pass it along.
Best,
Joe Eqcome
On Nov 18 04:03 PM Tinman wrote:
> Agree that income-only yield is the right metric. Is there a readily
> available, downloadable, and preferably reliable source of this info
> for CEFs?
CEF Discounts Approaching 1999 Nadir [View article]
Precious metals are typically a top/early bear stock market investment for investors looking to protect themselves from increasing stock market uncertainty. So, it might make sense that it would underperform in a market recovery. Other precious metal ETFs include IAU, GLD, SLV & DBS--all have short histories. CEF is currently trading at a 11% premium.
If you plot CEF against the S&P 500 you'd see an inverse relationship during the 1998-2002 periods. However, in 2008 the stocks seemed to trade in tandem as the market tanked. This still might be a good "short" possibility if the historic relationship between the two reasserts itself (long SPY; short CEF). Talk to your financial advisor before making such a trade.
Below is a URL to CEF at ETFConnect.com that has an abundance of data on CEF. www.etfconnect.com/sel...
CEF Discounts Approaching 1999 Nadir [View article]
However, depending on the CEF fund type, the more likely reason for a decline in NAV from its offering price may be the value of its portfolio has declined--due to market forces or events specific to its stock holdings. The investment rationale for buying the stock is that the CEF’s portfolio holdings may recover thereby driving up the stock of the CEF above my purchase price.
This may be somewhat similar to a builder who built a house costing $1 million. Due to declining housing values, I could buy it from him for $800,000. Why should I care that it cost him $1 million to build as long as I felt it was a value for me at that price?
It similar to an investor who purchased a CEF stock at the original offering price, I don't particularly care what he purchased it for as long as I think it’s a good value for me at the price I pay at that point in time.
CEF Discounts Approaching 1999 Nadir [View article]
CEF Discounts Approaching 1999 Nadir [View article]
Laws of Closed-End Fund Investing Suspended? [View article]
Go to ETFconnect.com find a fund. URL is below and It will allow you to compare funds side by side. I think you'll find it an extremely useful tool.
www.etfconnect.com/sel...
Best,
Joe Eqcome
Laws of Closed-End Fund Investing Suspended? [View article]
Cohen & Steers: CEF 'Spring-Loaded' in Market Recovery [View article]
Example, if the underlying stocks owned by FOF go from a 10% discount to a 5% discount, the portfolio of stocks should increase by 5.8%. This would also be true for FOF's stock price--assuming the premium (or discount) remains the same. If in fact the premium increases (or in the case of a discount, contracts), the return on the underlying portfolio is further enhanced. If FOF's premium increases from 1% to 2% (a small nominal increment) the return on FOF's stock would be 6.9% vs. the underlying return of 5.8%.
FOF currently trades at a slight premium of 0.76% (10/24/08). FOF has been trading at a monthly average discount of 2% price to NAV since its inception, so there is the possibility that if FOF gravitates to its historic mean it may have some dilutive effect on the underlying return of its portfolio. Although, in market recoveries CEF's discounts contract and premiums expand.
Cohen & Steers: CEF 'Spring-Loaded' in Market Recovery [View article]
Secondly, while CEFs have been around since the Depression (regulated by the ’40 Act) its current composition would not be comparable with far earlier periods. After being moribund for decades, the CEF industry experienced a growth spurt. Since 1990 the CEF industry has gone from $52.4 billion in assets (71% bond funds) to $315 billion is asset in 2007 (only 20% represented bond funds) (ICI Fact book). So a comparison with the pre-90's might not be meaningful.
Lastly, FOF currently trades at a discount of almost 2% to its NAV which represents a further discount to its discounted holdings.
While FOF is currently yield almost 15%, only 28% of the distribution is covered by investment income. It will likely have to tap into its capital to maintain the distribution--placing downward pressure on its NAV